Contract management in public services: Case of school transportation in the city of Espoo Janica Ahola Department of Marketing; Supply Chain Management and Social Responsibility Hanken School of Economics Helsinki 2020 i HANKEN SCHOOL OF ECONOMICS Department of: Marketing; Supply Chain Type of work: Master’s Management and Social Responsibility Thesis Author and student number: Date: 29.04.2020 Janica Ahola S183200 Title of thesis: Contract management in public services: Case of school transportation in the city of Espoo Abstract: The public sector is currently undergoing a transformation as a result of different challenges it must face. In recent decades, the public sector has instead taken on the role as an owner and a buyer (Valovirta & Hyvönen 2009) through privatization, purchasing and outsourcing activities (Pekkarinen, Hennala, Harmaakorpi & Tura, 2011). Back in the eighties, the public sector started to turn to the private sector (Sagawa & Segal 2000), resulting in the emergence of cross-sector partnerships (Guzmán & Sierra, 2012). Now, it is the private sector that instead provides public services. The city of Espoo’s logistics unit is responsible for school transportation in the city. Followingly, the city has also contracted private transport companies to provide citizens with transport service, thus transferring the responsibility of the service provision to the transport companies. The question is: how can the city maintain its control over the service quality in such a service triad through a dyadic relationship? This study is a case study focusing on the city of Espoo. The aim of this study is to provide suggestions for transport service quality management, monitoring and measurement by studying five other main cities and comparing them to the city of Espoo. Furthermore, this study contributes to the research around service triads and dyads. The case study adopts a qualitative approach by gathering data through semi- structured interviews, direct observation, statistics and documents. The results indicate that the service quality monitoring in the city of Espoo is more intensive compared to other five cities. The results also highlight that the current monitoring level provides the city of Espoo with more data. The results show different reasons and strategies behind monitoring strategies, further suggesting different approaches to service quality management and supplier performance monitoring. Furthermore, all six cities seem to be following the current trends regarding public sector transformation. Yet, the transformation process is continuing towards one — yet — unknown destination. Keywords: Public procurement, public service, school transport, public service quality, service triads, service dyads ii SVENSKA HANDELSHÖGSKOLAN Institution: Marknadsföring; Logistik och Arbetets art: samhällsansvar Magisteravhandling Författare och studerandenummer: Datum: 29.4.2020 Janica Ahola S183200 Avhandlingens rubrik: Contract management in public services: Case of school transportation in the city of Espoo Sammandrag: Den offentliga sektorn håller på att förändras som ett resultat av olika utmaningar som den tvingats bemöta. Under de senaste decennierna har den offentliga sektorn istället tagit rollen som ägare och kund (Valovirta & Hyvönen, 2009 egen översättning) genom privatisering, inköp samt utläggning av verksamhet (Pekkaring, Hennala, Harmaakorpi & Tura, 2011). På 1980-talet började den offentliga sektorn vända sig till den privata sektorn (Sagawa & Segal 2000). Till följd av detta uppstod det samarbete mellan dessa två parter (Guzmán & Sierra, 2012), vilket medfört att den privata sektorn har tagit över ansvaret för den offentliga servicen. Esbo stads logistikenhet har ansvaret för skoltransporterna inom Esbo stad. Även Esbo har tytt sig till den privata sektorn genom att göra kontrakt med privata bolag gällande transportservicen. Med dessa kontrakt har staden överfört ansvaret av servicen istället till företagen. Frågan är, hur kan staden ha kontroll över kvalitén av servicen i en så kallad service triad via relationen mellan den offentliga och privata sektorn, en så kallad service dyad? Detta är en fallstudie som fokuserar sig på Esbo stad. Syftet med denna studie är att komma med förslag för bättre kvalitetsstyrning, samt uppföljning och mätning genom att undersöka fem övriga städer och jämföra dessa med Esbo stad. Dessutom bidrar denna studie till forskning inom service triader och dyader. Denna studie omfattar ett kvalitativt tillvägagångssätt genom att samla data med hjälp av semi-strukturerade intervjuer, direkt observering, statistik och dokument. Resultaten indikerar att kvalitetskontrollen i Esbo stad är mera intensiv jämfört med de övriga städerna. Resultaten visar även att den nuvarande uppföljningsnivån ger Esbo stad tillgång till mer data. Resultaten visar olika underliggande orsaker och strategier till övervakning, vilka antyder olika tillvägagångssätt till kvalitetsstyrning och övervakning av leverantörsprestanda. Dessutom visar denna studie att alla sex städer följer de nuvarande trenderna inom offentliga sektorn, som genomgår en transformation. Det ser dock ännu ut, som om denna omvandlingsprocess ännu pågår mot en tillsvidare okänd destination. Nyckelord: offentlig upphandling, offentlig service, skoltransport, offentlig service kvalitet, service triads, service dyads iii CONTENTS 1 Introduction .............................................................................................................. 1 1.1 Problem definition ............................................................................................. 1 1.2 The research questions ...................................................................................... 2 1.3 Research focus ................................................................................................... 3 1.4 Research aim ...................................................................................................... 3 1.5 Limitations ......................................................................................................... 3 1.6 Study methods ................................................................................................... 4 1.7 Key definitions ................................................................................................... 5 1.8 Study structure .................................................................................................. 5 2 Literature-based framework .................................................................................... 7 2.1 The nature of the public sector ......................................................................... 7 2.1.1 The public sector in Finland ........................................................................ 8 2.2 Service triads and dyads .................................................................................... 9 2.2.1 Challenge: Supplier performance monitoring .......................................... 11 2.2.2 Challenge: Maintaining strong triad position ........................................... 12 2.2.3 Challenge: Building strong collaboration- and trust-based relationship . 13 2.2.4 Challenge: Contracts ................................................................................. 14 2.2.5 Challenge: using incentives ...................................................................... 15 2.3 Public procurement and legislation ................................................................. 15 2.3.1 Competitive tendering and public procurement...................................... 16 2.3.2 Public procurement in Finland ................................................................. 17 2.3.3 School transportation service in Finland .................................................. 18 2.4 Passenger transport service ............................................................................. 19 2.4.1 Closer look: what is service quality .......................................................... 20 2.5 Summary .......................................................................................................... 21 3 Methods.................................................................................................................. 22 3.1 Study design ..................................................................................................... 22 3.1.1 Case studies .............................................................................................. 23 3.2 Data collection methods .................................................................................. 24 3.2.1 Interviews ................................................................................................. 25 iv 3.2.2 Observation .............................................................................................. 27 3.2.3 Documents as secondary data ................................................................. 29 3.3 Analysis, interpretation and presentation ....................................................... 29 3.3.1 Theoretical framework ............................................................................. 30 3.3.2 First step: data analysis ............................................................................ 30 3.3.3 Second step: interpretation...................................................................... 31 3.3.4 Third step: reporting findings ................................................................... 31 3.4 Quality of the study ........................................................................................